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The Changing Role of Maintenance and Reliability Organizations in the New Economic Reality

1. Excess Capacity / Underutilized Assets

With the current economic recession, most companies are not running their assets at full capacity. This is highlighted by the US government report on industrial utilization. It says:

"In July (2009), the capacity utilization rate for total industry was at 68.5 percent, a level 12.4 percentage points below its 1972-2008 average. Federal Reserve Statistical Release - Industrial Production and Capacity Utilization report."

This means that there are assets that are being operated based on a reduced capacity marketplace, thus being partially utilized. Depending on the design parameters for an asset, being partially utilized can be damaging to an asset. For example, there are large industrial assets, such as turbines, paper machines, basic oxygen furnaces, coke plants, petro-chem processes that can not be turned on or off on a moments notice. Yet there are still executives in companies that are not aware of the impact this type of operating strategy will have on the assets. Without this understanding, senior executives are ordering the assets to be switched on and off or operated at partial capacity (based on business conditions). This type of policy may seem prudent from a financial perspective, but will result in long term damage to the assets, devaluing them more rapidly, and shortening their overall life cycles.

The solution to the problem is for the senior executives to consult with the maintenance and reliability professionals in their organization before making any decisions relating to a change in operating strategies for any assets. Based on a financial estimate of the damage to the assets, combined with the perceived financial benefits of changing the operating strategy, the senior executives will be able to make a sound decision that will provide the greatest return on investment for their shareholders.

This will require the maintenance and reliability professionals to present the projected impact of changed operating strategies in financial terms to the senior executives. This requires a change in thinking for most maintenance and reliability professionals. Instead of phrases like "We can increase MTBF and lower MTTR", they will need to show the financial impact with "This change will raise our RONA by 5%" or "This change will cause the bearing to fail in 6 months, resulting in repair costs of an additional $10K and will result in $100K of lost production".

2. Idled or "Mothballed" Assets

A second option available to many senior executives forced to cope with in the changed economy is to simply shift production from "high cost to produce" plants to "lower cost to produce" plants. This will result in entire plants being closed and the equipment being "mothballed" until market demands allows the restart of the plants. Why is this such a problem? It is a problem, since there is much more to shutting a plant down than merely throwing a switch and walking away from the equipment.

When assets are shut down for extended periods of time, there are components, such as bearings, that will incur stresses that equipment designers did not anticipate. For example, bearings mounted under load, not rotating, subjected to any external vibration will develop false brinelling. False brinelling occurs when the fluid film barrier (of the lubricant) is ruptured and metal to metal contact (between the rolling elements and the races) occurs. When a source(s) of external vibration develops, the microscopic rocking motion creates wear, making recesses in the races. When the equipment is restarted, the lubricant cannot fill the new gaps in the raceway, resulting in more rapid wear and premature failure of the bearing.

The solution is for senior executives be briefed on the additional work load that is created when equipment is shut down and "mothballed" for extended time periods. They need to understand that there is still proactive maintenance work that is required, even though the equipment is not being operated. This means that they should allocate labor hours (perhaps as preventive maintenance) to periodically service the equipment. For example, the equipment should be scheduled to be periodically "jogged" or repositioned to prevent damage while "mothballed". The senior executives will need to be aware that funds will still need to be budgeted to insure that the assets will be capable of operating when they are required to restart.

Some senior executives may argue that their equipment will never run again - that the market capacity will never reach its previous levels. In this case the senior executives still need to be aware of the impact that the equipment condition can have on profitability. While the assets may be decommissioned, they still have value. If they are properly maintained in while "mothballed" they will still retain their value if they can be sold. Well maintained equipment will always bring a higher price than assets that are in a deteriorated, need-to-be-rebuilt condition. If the equipment can be sold, the sale price can be included as profit to shareholders.

The maintenance and reliability professional will need to be well prepared to estimate the hours that are going to be required to keep their assets in a "ready to run" condition. This includes refreshing their knowledge related to the tasks that need to be performed on the equipment if it is be kept in a "ready to run" or a "ready to sell" mode. This means refreshing their knowledge on topics such as false brinelling, lubricant contamination and PH levels, building envelope inspections, etc.

3. Deferred Maintenance

In an economic recession or downturn, it is common for companies to defer maintenance and repairs. While it happens in industrial settings, it happens more regularly in facilities departments. Highlighting this fact are some findings related to schools and universities. In 2002, American School and University (AS&U) reported that for the fifth consecutive year "M&O (maintenance and operations) spending as a percentage of district net expenditures (NCE) continued its slide...sinking to 7.8 percent compared to 8.5 percent the year before" (Joe Agron, 2002, p. 26). In 2002-2003 school year, spending for maintenance and operations sank further, to 7.4 percent of district net current expenditure (NCE) (Joe Agron, 2003, p. 1)(See table 1 for a decade trend). The AS&U report is even more discouraging when you consider that allocations for maintenance have been declining steadily for decades, even in times of prosperity, and are particularly vulnerable in times of budgetary constraints.

Since schools and Universities are also impacted by the current recession (budgetary constraints), they are having the same problems that cost cutting is creating in the industrial sector. In fact, industry has many of the same trends as does facilities. For example, in schools and university settings, there is are built-in financial incentives for avoiding timely maintenance expenditures, and letting current buildings deteriorate until replacement is the only real option. Governmental aid reimbursement is provided explicitly for capital expenditures at a generous rate, whereas it is not for routine preventive maintenance and repair. Unfortunately, as long as state and local funding policies encourage construction of new buildings rather than concentrating on maintenance and renovation of existing ones, schools and universities will not implement proactive solutions.

Table 1.
Spending on Maintenance and Operations As a Percentage of Net Current
Expenditures (AS&U)

Year Ending Percentage

1993 9.0%
1994 9.2%
1995 9.1%
1996 9.6%
1997 9.6%
1998 9.4%
1999 9.1%
2000 9.0%
2001 8.5%
2002 7.8%
2003 7.4%
Save a Penny, Lose a School: The Real Cost of Deferred Maintenance - Rural School and Community Trust - Page 8

While this information applies to schools and universities, it is clear that similar trends exist in industry. In many cases, it is easier to appropriate capital financing to solve a problem than it is to increase the maintenance budget to solve the same problem.

Senior executives will have to realize that capital dollars have the same impact on the bottom line as maintenance expenditures. When Return on Asset (ROA) calculations are performed, the profits compared to the investments to make the profits, it is clear that capital and expense dollars will have the same impact. While there are certain tax benefits and write-offs that can be obtained, they are of little help when considering the overall profitability of a company. Ultimately, if senior executives realize that their financial responsibility is to the shareholders/ owners of the company, they can make the proper decisions related to deferred maintenance.

For maintenance and reliability professionals, they will need to focus on presenting the financial impact that deferred maintenance has on their organization. For example, when deferring maintenance, what is the cost of allowing the equipment to deteriorate another year? Another 2 years? How much greater (in financial terms) will the damage be to the equipment versus making the repair (or performing the maintenance) at the present time? When maintenance and reliability professionals have this type of information, they will be able to assist their senior executives to make the right decision for their investors (or taxpayers).

4. Skills Shortages / Experience Retention

During the current recession, many companies have "downsized" their workforces. This has impacted the maintenance and reliability organizations, by forcing them to release key employees with critical knowledge related to the company's equipment and facilities. Several companies have even dissolved their corporate maintenance and reliability staffs, eliminating their internal support structures. Additionally, early retirements have been offered to (or in some cases) forced on senior maintenance (and operations) technicians. The question now becomes, when the economy turns around, who will be qualified to is qualified to operate & maintain the existing equipment? In many cases, the knowledge required to run the plant or facility equipment efficiently and effectively is lacking and can not be easily obtained. The answer to this problem is not easy. It will require disciplined work processed, clearly defined job roles and responsibilities, and job/ role specific training.

For senior executives this will mean strict attention will need to be given to organizational structures and a disciplined approach to enforcing job roles and responsibilities. Since many job roles will be filled with individuals that are not familiar with these roles and the related duties, job/ role specific training will be required. With the recession easing and companies restart many of their operations, they must budget properly for training and resources. If they do not, then the operations will be overly expensive to restart and may not be profitable until the large part of the organizational learning curve is past.

For the maintenance and reliability professional, knowledge capture and retention must be a primary focus. There is much explicit (what to do) and tacit (how to organizationally accomplish) knowledge that has already left the organization. It is imperative to recover as much knowledge as possible (from those employees that have left) and insure that current employee's knowledge is captured. How? By fully utilizing existing CMMS/ EAM systems to identify and document work procedures and then developing training programs to insure the information is disseminated throughout the organization.

5. Sustainability/ Green Initiatives

Sustainable and Green initiatives have a great deal to do with energy conservation and environmental responsibility. As the economic recovery starts, a greater number of companies are focusing on these initiatives. However, how does the maintenance and reliability function impact a companies ability to successfully achieve these initiatives? Environmental stewardship is rooted in the proper design and maintenance of operational assets. This means that equipment must be properly designed to achieve environmental compliance. In addition, for the equipment to continue to meet environmental standards, it must be properly maintained. This includes having the correct maintenance procedures to keep the equipment in compliance. However, it also means having the proper maintenance staffing to complete the maintenance procedures in a timely manner.

Maintenance organization can also be key to controlling energy usage by properly maintaining key equipment components and units. For examples, companies have equipment such as heat exchangers, coolers, boilers, air compressors, and electrical generations and distribution systems. Proper scheduled preventive maintenance can help control energy usage by these types of equipment and units. Neglect of proper maintenance procedures or failure to complete such maintenance on a proper schedule will increase the energy consumption of a plant or facility.

Senior executives need to carefully consider the sustainability and green initiatives currently being considered. they need to factor in the impact that these initiative will have on their maintenance and reliability organizations. This may mean an increase in staff size, increased technical training, and modified roles and responsibilities. These changes are not without additional costs. Unless the maintenance and reliability budgets are given proper consideration, the sustainability and green initiative will struggle to succeed.

For the maintenance and reliability departments, the move to sustainability and green initiatives will mean an increase in their preventive maintenance workload. For their preventive maintenance procedures to be capable of supporting the sustainability and green initiatives, they will need improved content development. Most preventive maintenance tasks found in companies today are vague and incomplete. Unless the preventive maintenance tasks are given a higher priority, few companies will be successful with their sustainability and green initiatives.

While the current economic climate shows signs of improvement, the full recovery is yet in the future. By giving careful consideration to the items discussed in this article, companies (particularly those soliciting input from their maintenance and reliability organizations) will be better prepared to compete when the economic recover gains momentum. Companies that fail to consider these issue proactively, will be behind their competition when the recovery occurs and may not be capable of competing in the "new economy".

Terry Wireman, C.P.M.M.
Senior Vice President
Vesta Partners, LLC
and Author, The Maintenance Strategy Series

Terry Wireman

Senior Vice President, Strategy
Vesta Partners

Terry is the senior vice president of strategic development. He leads Vesta’s maintenance and reliability seminars and training, and provides strategic guidance to help the firm shape its market strategy and long-term direction. For over four decades, Terry has been specializing in the improvement of maintenance management and reliability.

He helps customers develop “best-in-class” maintenance and reliability policies and practices. As an international expert in maintenance/asset management, he has assisted hundreds of clients in North America, Europe and the Pacific Rim to improve their maintenance and asset effectiveness.

In addition, he has authored twenty four textbooks and scores of white papers and articles related to maintenance management process and technology.

Terry is currently a member of the US Technical Advisory Group working on producing the ISO-55000 standard. Terry is committed to keeping Vesta on the forefront of thought leadership pertaining to maintenance and reliability strategies.

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